James Ricchiuti : So I’m looking at Slide 5. And clearly you have some tough comparisons in a number of these product areas. But it does sound like you’re anticipating a pretty reasonable order flow again in ’23. And I wonder if you could elaborate on the areas of the business that you see perhaps have a decent pipeline, good line of sight.
Todd Gleason : Yes, Jim, thanks for the question. I appreciate the interest in this topic. So look, we have a very good pipeline, and we’ve been pretty consistent in talking about that. Now, of course, look, at some point, you get to tougher comparables, right. Now that said, in 2021, we had orders growth of 29% to be exact. And then — so we had a fairly tough comparable in some businesses. And across the board, we did a nice job of growing. Look, we give full year outlook for a reason because our quarters can be — can ebb and flow a bit. In fact, if you look at our third quarter, orders were, if you want to say, only about $102 million, $101 million or so and that seems low compared to the first quarter and the fourth quarter.
The timing of orders can be difficult to manage because that’s really up to the customers to when they want to book jobs. What we know is that we continue to bid on a high level of orders. And our goal is to continue to grow our orders year-over-year, mostly organically, but obviously, sometimes with the addition of some of these smaller acquisitions that add to our order book. So again, we’ll caution people to not look at quarterly because, again, that can be difficult to always manage the quarterly timing. And of course, we have a really tough comparable in the first quarter, but I would say we feel really good about the pipeline that we have and our growth metrics all feel like they’re so robust.
James Ricchiuti : And you may have mentioned it, I apologize if you did. Did you say what your organic order growth rate was in the quarter?
Todd Gleason : We didn’t. But if you look at the $150 million, it would have been easily 90% of that being organic, give or take. So somewhere around in that percentage. So it’s again, mostly, you look at the acquisitions we made, three of the four really didn’t come on to our books until about halfway through the year anyway. DS21 was completed at the end of the third quarter. It was really just the GRC acquisition, which we completed in March that was here for 75% of the year. So for the most part, our orders growth last year and in the fourth quarter was largely organic.
James Ricchiuti : And that actually segues, Todd, into the next question. My follow-up is just on the M&A pipeline. How active is it? You’ve done, I guess, roughly the same number of acquisitions in recent years in industrial water, industrial air. Where do you see the opportunity to build out the platform? Is it going to be in one area more than another?
Todd Gleason : We like balance. We think that we’re advancing our leadership position in industrial air. And so if there are opportunities, technical areas or geographic and market areas, our goal is to move into adjacent markets or adjacent geographies organically. And if we can’t do it organically, we’ll do it inorganically. And so for industrial air, we’re advancing our leadership position. There are certainly opportunities for us there that we look at. Industrial water, we’re still building our niche leadership. So as we’re building, same thing, we want to find ways to add and bolster our niche leadership in the areas that we talked about. And then in the energy transition, where we haven’t necessarily done a deal yet, there are certainly opportunities for us to continue to transition our leadership along with where energy is heading.
So we’re going to remain programmatic. We like the pipeline that we have in terms of opportunities that we’re looking at. And I think we’ve got a pretty good playbook at the moment.
Operator: And our next question today comes from Rob Brown with Lake Street Capital Markets.
Robert Brown : Nice quarter as well. I think you talked about industrial water becoming a bigger percentage of your business. Could you give us a sense on where you see that 3 to 5 years coming out and how that matures?
Todd Gleason : I don’t know that we’ve set an actual — I mean, look, I have a number that I believe that at the end of the day, we certainly — if you index everything at a similar growth rate somehow over the next few years and our strategic plans and activities play out the way they could maybe, and strategic being organic and inorganic, maybe we wake up in a few years and all 3; air, water and energy transition are somewhere around 1/3 of our company because we expect to get really good growth in each, again, organically and inorganically. So in that case, you could see a slightly higher investment in industrial water potentially. But the acquisitions we’ve made in industrial water and the growth opportunities in that space are really large, we feel.
And so we’re excited about that. But again, if it just so happens that air and energy, the growth rates there exceed, maybe our expectations and maybe we don’t end up at quite that balance. We’re not in a race to grow one more than the other. We look at strategic and accretive acquisitions. And we look at the same thing from our portfolio for organic growth. We have a certain amount of capital we’re going to deploy for people, process, markets, marketing, business development, and we’re going to go — we’re economic machine. We’re going to go after where we’re going to get the best bang for our buck. And so we’ll spend the money in any of our businesses and segments that we believe is going to yield the best short, mid and long-term results.
Robert Brown : And then on the kind of the segment or the platform growth, are the duct business and the Fluid Bed Cyclone business, are those maybe lagging and maybe you’ll see more order growth in ’23? How do you sort of see those coming along? Or how are they at this point?
Todd Gleason : We believe we will see good orders growth in 2023.
Operator: Our next question today comes from Amit Dayal with H.C. Wainwright.
Amit Dayal : Congrats on the execution. Just one question on sort of the backlog and the revenue outlook. Is there any higher sort of weight on any of the segments from a margin or revenue perspective in this outlook?
Todd Gleason : Yes. I mean — so what, I mean, if you look at our backlog, we would — we feel good about the margin profile in our backlog. A couple — whether this was all in your question, let me just make a couple of comments on our backlog. First of all, the way we see backlog sort of executing throughout the year is sort of similar to some of the profile that we’ve shown in previous years, where the first quarter, there’s less project management days. There’s less days in the quarter. And projects usually have a little bit of a slower start in the beginning of the year. So I think in the first quarter, we’re expecting a profile that looks like our historic profile where Q1 from a project backlog execution perspective is probably the smallest of the quarters.
Margins we feel good about in terms of keeping a good run rate, so to speak, but then ramping up in the second quarter, third quarter, fourth quarter. So if you think about that from a profile. In terms of the segments, I think we feel like we’re in a pretty good rhythm right now in terms of the balance across our businesses.
Amit Dayal : And then M&A continues to be sort of an important part of the strategy. Are you now potentially looking at slightly bigger size opportunities than what you did last year?
Todd Gleason : Well, we always look at bigger opportunities. And then we make decisions based on our ability to fund, execute and drive value. And so the deals that we’ve done in the 2 years since we started to do transactions, but especially in the last 12 months are the right deals. And if that means that a larger transaction is the right deal for our company and our shareholders and how we can execute for our customers, then we’ll do a larger deal. But right now, the transactions we’ve done have been the right size and I think the right value for our shareholders. And so we have a balanced pipeline of transactions that look like what we’ve done. We have other things we could look at. And I think you can expect that we’ll continue to put the right focus on driving shareholder value.
Amit Dayal : Just one last one with respect to China. How much of an impact would China have in terms of things opening up over there for your supply chain and for your revenue side of things. And any color on that would be helpful.
Todd Gleason : We’re not huge in China from a revenue perspective. It’s — look, it’s an incredible country with a tremendous amount of historic growth, future growth and opportunity. For us, maybe the second part of your comment or question around supply chain, opening up, being more reliable, that’s a good thing for everyone. And we serve everyone, if you want to call it that, and from a diversified perspective. So we’re probably more focused on where China, the stability of the supply chain and the reinvestment, if you will, can be a result of that. We’re probably more focused on that than we are specifically in China for China, there are jobs and there are opportunities that we want to serve. And we’re — and we have a good operation in China that serves the local markets. And so, Peter, do you want to add anything about the China commentary?
Peter Johansson : Yes. I think you’re maybe queuing off of our question mark on Page 18 around pace of recovery. There are both direct and indirect implications. If China, let’s say, opens and closes quickly, and begins to consume global resources in that recovery, we could see a spike in materials, pricing and impact on availability. So we’re very cautious in watching that. So that’s kind of an adverse impact because there’s inflationary and availability issues. The positive side of China recovering is their demand for liquefied natural gas and other materials that are provided and actually imported into the country as processed goods benefit CECO. So we look at it from both sides. And today, it’s kind of in balance. China is still a buyer of exported gas, but not nearly as much now that Europe has stepped into that role.
And Todd’s earlier point that most of our business in China is China for China. We export very little now. We are actively resetting our supply chain to shorten the length, shorten the time, localize more and build in country of customer destination for our projects. That’s why we have developed and continued to advance our global network of fabrication partners.
Operator: And our next question today comes from Bill Dezellem with Tieton Capital.
William Dezellem : Would you please quantify the pipeline of potential orders at the end of December versus 12/31/’21?
